Remember when blockchain was hot? Think back to the latter half of January when four exchange-traded funds rolled off of the assembly line and were greeted by media attention (hey, we covered all four launches) and investor enthusiasm. The nation was still gripped with bitcoin fever, and blockchain had gained attention as the record-keeping system used by bitcoin and other digital currencies.
But it also was being touted as the next big thing that could help corporations do a host of jobs better such as creating more efficient supply chains, improving data tracking and facilitating safer financial transactions. As such, it was seen as a more accessible way to play this potential paradigm shift.
The investing public went gaga when the first two blockchain ETFs, the actively managed Amplify Transformational Data Sharing ETF (BLOK) and index-tracking Reality Shares Nasdaq NexGen Economy ETF (BLCN), launched on the same day. Both funds garnered more than $100 million in assets faster than you can say “cryptocurrency.”
Those two funds never relinquished their first-mover advantage and remain the largest blockchain ETFs, but as of late September both were “stuck” in the $100 million in assets range. The reason for the stalled momentum could be several-fold: Bitcoin’s plunging price might have dimmed enthusiasm for blockchain; blockchain is a nascent industry going through growing pains; investors are looking for the next big thrill; etc.
Share prices for both BLOK and BLCN were slightly in the red when autumn arrived, though the other two blockchain funds that launched in January—the First Trust Indxx Innovative Transaction & Process ETF (LEGR) and Innovation Shares NextGen Protocol ETF (KOIN)—were in the black at roughly 3% and 8%, respectively.
These blockchain funds illustrate vagaries of investing in themes. And perhaps the big theme for ETFs in 2018 is that it has been the year of the thematic ETF. According to Toroso Investments, a New York City-based asset management, research and consulting firm focused on ETFs, 24 of the 177 ETFs launched through September 21 were thematic. All told, ETFs that Toroso classifies as thematic had nearly $62.5 billion in assets, or about 1.7% of all U.S. ETF assets. More than the numbers, though, the plethora of new thematic funds has made an impact from a headline perspective, as it seems there’s been a new thematic fund being launched almost weekly.
So, what exactly is a “thematic” ETF?
“There are so many ETFs out there that you can pretty much have a theme for anything you want,” says Tom Phillips, president of T.S. Phillips Investments Inc. in Oklahoma City.
Technically, that’s true. But let’s think more cinematically here.
“The way to look at themes is that it’s an alternative to just investing in the market,” says Benjamin Lavine, chief investment officer at 3D Asset Management in Hartford, Conn. “From a portfolio strategist’s viewpoint, thematic investments enable a portfolio manager to capture the nuances within the broad growth theme basket apart from what can be captured via market-cap-based indices.”